How to repair a bankrupt country

How to repair a bankrupt country
By Alex Merced

Well continuing with the balance sheet analogy of my previous post, how does a bankrupt company survive bankruptcy and what is bankruptcy. In order for a company to survive it must have enough assets to pay of it's creditors which are part of it's liabilities, if it can't do this (which means there's no more equity) then the company must go into bankruptcy. In bankruptcy the company will attempt to do a few things:

1. Try to restructure the terms of it's liabilities
2. Try to exchange liabilities in exchange for Equity
3. If possible to see if people will forgive debt (wouldn't bet on this)

So basically for a country as the economy shrinks to the point where there is little to no private sector and just a public sector this is an economy in bankruptcy. So how would we use the bankruptcy approaches above to fix this problem?

1. Restructure the costs of the Public Sector by lower wages, laying off excess public workers, and lowering the amount budgeted to parts of the private sector.
2. Turn some public programs into privately run services or programs which allow entrepreneurs to find ways to provide the same service in a profitable and cost efficient way, without the moral hazard that running at a perpetual loss a public program can cause.
3. Or completely end programs and services who's costs can't be reduced and can't be privatized.

All three of these actions will result in more resources for a larger private sector means for a resilient and vibrant economy as I described in the previous post. In a country like the US that is quickly growing into this bankruptcy scenario it's time to start advocating drastic measures like this before it's too late.